I saw a post today by J Philip Faranda discussing cash offers. He said that buyers had to show proof of the cash in a bank account before anyone would accept their offer. I disagree.
I'm not an attorney, don't play one on TV, and I'm not a licensed agent either. I'm a real estate investor and hard money lender in MA and NH, so my perspective is probably different from that of most readers here on AR.
I just read through the Standard P&S contract used in Massachusetts issued by the Greater Boston Real Estate Board. No where in it does it say that a cash buyer must show proof of his ability to close.
Here is what it does say:
1. That the balance of the funds due after the initial deposit must be delivered at closing.
2. That there is an option for a financing contingency. (This option is frequently crossed out if the buyer declines a financing contingency. This is usually what creates a "cash offer".)
3. That if the buyer can't deliver as promised, the buyer's deposit is forfeited. (Sometimes the contract is amended to include verbiage that the deposit will be the sellers sole remedy at law.)
No where does it say that a buyer must use his own cash to close the deal. It simply says if he can't close, he loses his money. Requiring proof of funds may be customary in an area, but is certainly not required. Someone's cash will be used, but not necessarily the buyer's.
I've often financed "cash offers" from real estate investors. They know perfectly well they are putting their deposit at risk when they make the offer. If they can't pull the money together, from whatever source, they are out the deposit. In fact, we won't underwrite the actual project until they have a contract, because we don't know what the purchase price is going to be until they do. And since we don't base our funding on the person, but on the project, a contract, or at least a signed offer, is necessary.
So all you brokers and real estate attorneys out there please jump in and tell me where I'm wrong. I know there are several MA attorneys on AR, so please, feel free to put me in my place.
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